DBRS Ratings Limited (DBRS Morningstar) assigned a AA rating to the Series 5 bond issued under the Deutsche Bank AG (DB AG or the Issuer) Conditional Pass-Through Structured Covered Bonds Programme (CPT SCB or the Programme) guaranteed by SCB Alpspitze UG. Series 5 is a EUR 560 million fixed-rate bond paying a coupon of 0.47% and matures on 23 July 2023.
All covered bonds (CBs) issued under the Programme rank pari passu with each other and DBRS Morningstar currently rates them AA.
The ratings are based on the following analytical considerations:
-- A Covered Bonds Attachment Point (CBAP) of “A”, one notch below DB AG’s Long-Term Critical Obligations Rating (COR). DB AG is the Reference Entity (RE) for the programme. Deviating from its “Rating and Monitoring Covered Bonds” methodology, DBRS Morningstar assigned a CBAP that is one notch below the COR even if the Programme can be seen as strategic for the funding of the RE’s primary activity.
-- A Legal and Structuring Framework (LSF) Assessment of “Very Strong” associated with the Programme.
-- A Cover Pool Credit Assessment (CPCA) of BBB, which is the lowest CPCA in line with the LSF-Implied Likelihood (LSF-L).
-- An LSF-Implied Likelihood (LSF-L) of AA (low).
-- A one-notch uplift for good recovery prospects.
-- A committed minimum overcollateralisation (OC) of 15%. DBRS Morningstar gives full credit to such commitment in accordance with its “Rating and Monitoring Covered Bonds” methodology.
DBRS Morningstar analysed the transaction using its European Covered Bond Cash Flow tool. The main assumptions focused on the timing of defaults and recoveries of the assets, and interest rate stresses.
Everything else being equal, a downgrade of the CBAP by one notch would lead to a downgrade of the LSF-L by one notch, resulting in a downgrade of the CB ratings by one notch. In addition, all else unchanged, the CB ratings would be downgraded if any of the following occurred: (1) the CPCA was downgraded below BBB; (2) the LSF Assessment associated with the Programme was downgraded to Average or below; or (3) the quality of the cover pool and the level of OC were no longer sufficient to support a one-notch uplift for good recovery prospects.
For further information on the Programme, please refer to the rating report at www.dbrsmorningstar.com.
The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment and income reductions for many borrowers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many residential mortgage pools, some meaningfully. The ratings are based on additional analysis and adjustments to expected performance as a result of the global efforts to contain the spread of the coronavirus. On 16 April 2020, DBRS Morningstar's Sovereign group published its outlook on the impact to key economic indicators for the 2020-22 time frame. For details see the following commentaries: https://www.dbrsmorningstar.com/research/359679/global-macroeconomic-scenarios-implications-for-credit-ratings and https://www.dbrsmorningstar.com/research/359903/global-macroeconomic-scenarios-application-to-credit-ratings. DBRS Morningstar’s analysis considered impacts consistent with the moderate scenario in the referenced reports.
On 24 April 2020, DBRS Morningstar published a commentary outlining how the coronavirus crisis is likely to affect the ratings of DBRS Morningstar-rated CBs in Europe. For more details please see: https://www.dbrsmorningstar.com/research/359987/covid-19-the-impact-on-european-covered-bonds.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in euros unless otherwise noted.
The principal methodology applicable to the rating is: “Rating and Monitoring Covered Bonds“ (28 June 2019).
In DBRS Morningstar’s opinion, the change(s) under consideration do not require the application of the entire principal methodology. Therefore, DBRS Morningstar focused on the cash flow analysis.
Other methodologies referenced in this transaction are listed at the end of this press release.
These may be found at: http://www.dbrsmorningstar.com/about/methodologies.
For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Global Methodology for Rating Sovereign Governments” at: https://www.dbrsmorningstar.com/research/350410/global-methodology-for-rating-sovereign-governments.
The sources of data and information used for this rating include investor reports provided by the Issuer.
DBRS Morningstar did not rely upon third-party due diligence in order to conduct its analysis.
At the time of the initial rating DBRS Morningstar was not supplied with third-party assessments. However, this did not impact the rating analysis.
DBRS Morningstar considers the data and information available to it for the purposes of providing this rating to be of satisfactory quality.
DBRS Morningstar does not audit or independently verify the data or information it receives in connection with the rating process.
The last rating action on this transaction took place on 6 March 2020, when DBRS Morningstar assigned a AA rating to Series 4.
Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
Ratings assigned by DBRS Ratings Limited are subject to EU and U.S. regulations only.
Lead Analyst: Roger Bickert, Vice President
Rating Committee Chair: Ketan Thaker, Managing Director
Initial Rating Date: 1 November 2019
DBRS Ratings Limited
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The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrsmorningstar.com/about/methodologies.
-- Rating and Monitoring Covered Bonds (28 June 2019)
-- Rating and Monitoring Covered Bonds Addendum: Market Value Spreads (28 June 2019)
-- Global Methodology for Rating Banks and Banking Organisations (11 June 2019)
-- Legal Criteria for European Structured Finance Transactions (11 September 2019)
-- Interest Rate Stresses for European Structured Finance Transactions (10 October 2019)
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda (10 December 2019) and European RMBS Credit Model v 126.96.36.199
-- Operational Risk Assessment for European Structured Finance Originators (28 February 2020), https://www.dbrsmorningstar.com/research/357430/operational-risk-assessment-for-european-structured-finance-originators
-- Operational Risk Assessment for European Structured Finance Servicers (28 February 2020), https://www.dbrsmorningstar.com/research/357429/operational-risk-assessment-for-european-structured-finance-servicers
-- Global Methodology for Rating Sovereign Governments (17 September 2019)
A description of how DBRS Morningstar analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrsmorningstar.com/research/278375
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at email@example.com.